Businessweek Archives

Helping Hands For The Heartsick

May 26, 1996

Cover Story: Hot Growth Companies: MEDCATH

HELPING HANDS FOR THE HEARTSICK

Stephen R. Puckett, CEO of MedCath Inc., became an entrepreneur by accident: Timid lawyers made him do it. As chief operating officer of the Charlotte Mecklenburg Hospital Authority in 1988, Puckett, now 43, was astounded when lawyers told him limits on the hospital's charter meant he couldn't establish a mobile heart-care unit. Three days later, the hospital manager quit his job and formed a company to do just that.

It's such quick decision-making that has made MedCath one of the country's fastest-growing small companies--No.24 on BW's 1996 list. Charlotte (N.C.)-based MedCath has expanded from operating mobile heart-catheterization centers to a $40 million company building heart-care-only hospitals and fixed-site catheterization centers. MedCath also runs back-office operations for cardiologists. The stock, which went public at 14 in December, 1994, now trades around 39.

MedCath has succeeded so far because it's attacking the most lucrative sector in health care. Coronary care is a $117 billion business in the U.S., dwarfing cancer care. While many hospitals use cardiac treatment to fund other areas, MedCath uses its profits to expand.

The just-hearts focus has helped keep MedCath's labor costs about half those of more diversified hospitals. "You can be efficient in a specific area," says Puckett, "rather than trying to be all things to all people." And its doctors, who own a 49% stake in their hospitals, are also cost-conscious. One example: MedCath doctors use three-fourths the number of $300 angioplasty bags standard hospitals use. Some see potential conflicts of interest--but so far, American College of Cardiology National Database statistics show better clinical results for MedCath than for traditional hospitals.

BIG PLANS. Now MedCath is expanding, opening at least four heart hospitals in the next 18 months. To choose a site, MedCath focuses on the 17 states that don't require a certificate of need before a hospital can open. Next, it looks for aging populations in growing areas. Finally, MedCath teams with leading specialists.

The results from the first hospital, opened in January in McAllen, Tex., should keep the blood pumping. The hospital, which competes directly with one owned by hospital giant Columbia/HCA Healthcare Inc., is already generating estimated pretax profits of $4.8 million on revenues of $24 million.

Analysts say MedCath will face competition from hospital chains and new entrants but that the cardiac market can support several competitors. Still, MedCath's building plans are raising some eyebrows, as most hospitals have been reducing--not expanding--bed counts. "They're controversial because they're investing large amounts of money in bricks and mortar," says Piper Jaffray Inc. analyst Brooks G. O'Neil. But as long as MedCath keeps pumping out such healthy returns, that could be just what the doctor ordered.By David Greising in Charlotte, N.C.